Chinese Firms are Tops…in Drawing Securities Lawsuits

There’s an interesting little study cited in the pages of The Wall Street Journal, showing that China is the biggest in a not so prestigious category: U.S. securities lawsuits.

Most of the suits were against Chinese companies that listed in the U.S. in the past two years, and Chinese firms represented 43% of all suits against foreign companies in 2010. WSJ legal reporter Ashby Jones notes it’s a particular tactic these firms use when listing in the U.S. that’s drawn attention:

In regard to the suits against Chinese companies, the study shows that nine out of the 12 companies sued were listed on U.S exchanges using a process called a “reverse takeover,” in which a Chinese company takes over a dormant U.S. company already listed on a U.S. exchange.

The Securities and Exchange Commission has launched a number of investigations into the practice, focusing not only on the Chinese companies, but also on U.S. banks, auditors, law firms and stock promoters.

We’ll have to wait and see if the SEC snooping leads to anything more substantive. If it does, Chinese companies will be in the spotlight, but for all the wrong reasons.

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